#classical model

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Economics & Keynes HCJ

Firstly it must be noted that Keynes was an advocate of capitalism and his approach to Economics convey these attitudes. His ‘General Theory’ was written during the Great Depression, a time in which Keynes’ writings came under some scrutiny. Propositions put forward by Keynes, in the General Theory, were inconceivable during this time period; four main premises should be highlighted. Firstly, economies can and do suffer from an overall lack of demand - leading to unemployment. Secondly, economies’ inclination to correct shortfalls, if at all, is painfully slow. Furthermore Government policies increase demand rapidly, but may not last for an extended period of time. Finally, increasing money supply isn’t enough to encourage spending (sometimes); Government expenditure must intervene sooner or later.

The discourse initiates with Keynes preparing his readers for their economic worlds to be turned upside-down. As previously stated, the General Theory was unthinkable at the time and it ultimately challenges the widely accepted ‘classical model’ of economics. The classical model is a post-Keynesian attempt to reason pre-Keynesian concepts.

Economists of the time like Malthus were incapable of explaining the cause of deficient or excessive demand – and simply observed it. Keynes was aware of the need for provision of alternative manufacture of the economy, one which described demand through the use of specific data analysis.

It should be considered the General Theory didn’t seek to fix and debate the validity of the classical model, but instead offered a whole new system. It’s largely concerned with Say’s law which suggests that supply generates its own demand, simply due to the fact income must be spent. This made sense back then, when the value of money seems alien in comparison to modern times. Keynes defied the debateable concept that wage cuts will increase rates of employment. His critical advance was the destruction of Say’s law and the classical theory of interest rates.

Economists of this time were looking in the wrong places. Gottfried Haberler in his book ‘Prosperity & Depression’ asks why in economies booms are followed by busts. The question in hand, during this time period, should be as to how can mass unemployment come about. Keynes’ economical peers were occupied with the highs of a boom instead of discovering the procedure of a bust. He saw it as his job to explain why the economy sometimes operates below full employment and explored how more jobs can be made.

Modern monetary policy is laid out in the general theory, so we are very much product of Keynesian teaching; although there’s more still to deduce from Keynes’ insights. The general theory consults empirical judgements to consider certain circumstances. This is part of the progression of empiricism and Keynes’ means may be perceived in Karl Marx’s notions as well as Freud’s and a vast compliment of empirical philosophers/scientists/economists etc.

Keynes has been criticized for mistaking the great depression as a trend, but similar state of affairs were only ever seen again in 90’s japan, and even then it wasn’t quite the measure of the great depression. Inflation comes into play and makes the General Theory seem inappropriate, yet at the same time it can be attributed to Keynes himself. This is because bodies such as the Bank of England and the Federal Reserve have objectives of persistent low inflation in order to avoid the ploy described by Keynes.